Drug distributor Mallinckrodt paid out bonuses to key players amid bankruptcy talks.
St. Louis-based Mallinckrodt PLC disclosed it paid more than $5 million in executive bonuses when it became evident the pharmaceutical company may have to file bankruptcy amid the federal opioid litigation. Now, state officials must attempt to secure the settlement they previously negotiated with the distributor. The pay out consisted of cash bonuses of 1.5 times its five top executives’ base salaries, according to a securities filing, and was issued to keep its decision-makers in their roles for at least a year and a half.
“It’s unusual for a company to pay those bonuses prior to a Chapter 11 filing,” said Chuck Tatelbaum, a Florida-based bankruptcy attorney. “I see this as some real message-sending to the local governments that they better get a deal done or the thing will land in bankruptcy court.”
“The retention payments were determined to be appropriate by a committee of the board of directors,” Mallinckrodt responded. “We are navigating a challenging market environment and working to achieve a number of key objectives, including addressing near-term debt maturities, resolving opioid claims and pursuing a separation of the specialty generics business.”
The company is facing a total of $5 billion in debt land said in securities filings “it may be forced to pay material amounts as part of any opioid settlement.” In fall of last year, Mallinckrodt hired AlixPartners LLP for help with its restructuring and announced after securing the partnership it would suspend its plans “to spin out its generics unit,” which includes opioids. Mallinckrodt previously said its business plan amid settlement negotiations would “separate its main business from any potential liabilities from opioid litigation.”
“We are aware of Mallinckrodt’s risk of bankruptcy and we are willing to discuss a reasonable resolution with them,” Joe Rice, an attorney in the consolidated case leading settlement talks.
“This is a challenging situation,” Chief Executive Officer Mark Trudeau said on a conference call with investors and analysts in 2019. He was given $1.6 million in the deal. The board also agreed to give a $900,000 bonus to Mark Casey, Mallinckrodt’s chief legal officer, $930,000 to Steven Romano, the firm’s chief scientific officer and $825,000 to Chief Financial Officer Bryan Reasons with the stipulation that is could retract the offer and require repayment if the executives left prior to the end of the pay out’s contract.
Opioid distributors are primarily being accused of failure to disclose suspicious orders as required by the Food and Drug Administration (FDA) in the consolidated case before Judge Dan Polster, appointed by former U.S. president Bill Clinton, taking place in Cleveland, Ohio. The case is In Re National Prescription Opioid Litigation, 17-md-2804, U.S. District Court, Northern District of Ohio.
“A distributor’s failure to have systems in place to investigate and quarantine suspect and illegitimate products within their control is a violation of the law. But this is even more concerning given that we’re in the midst of a widespread opioid crisis,” FDA Commissioner Scott Gottlieb said.